United States General Accounting Office

GAO Report to the Honorable Edolphus

Towns, House of Representatives

December 1999 MEDICAID AND

SPECIAL EDUCATION

Coordination of

Services for Children

With Disabilities Is

Evolving

GAO/HEHS-00-20

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-283771 

December 10, 1999

The Honorable Edolphus Towns

House of Representatives

Dear Mr. Towns:

The Individuals With Disabilities Education Act (IDEA) and Medicaid have

the potential to offer children with disabilities a variety of services and

equipment that can be critical to their educational development and

physical well-being. Providing $4.3 billion in fiscal year 1999, part B of

IDEA, the Assistance to States for the Education of Children With

Disabilities program, assists school districts in meeting their obligation to

make available to all students with disabilities special education and

related services that are necessary for these students to benefit from

special education. Some of the costs of related services provided to

low-income children under IDEA may be covered by Medicaid, a

federal/state program that spent about $177 billion in fiscal year 1998 to

provide medical care for certain categories of low-income Americans,

including approximately 17 million children.1

 Although Medicaid

traditionally is the payer of last resort for health care services, since 1988

Medicaid has been required to reimburse for IDEA-related medically

necessary services for eligible children before any IDEA funds are used.2

IDEA’s authorizing legislation and regulations require that it coordinate

with other federal programs, such as Medicaid, to finance and deliver

services to children with disabilities. However, because the boundaries of

operation for IDEA and Medicaid are somewhat unclear, concerns have

arisen regarding the mechanisms of coordination between these two

programs. Accordingly, you asked us to (1) describe how Medicaid and

IDEA interact to meet the needs of low-income school-aged children with

disabilities and (2) identify issues that have arisen in coordinating

Medicaid and IDEA services in schools.

To accomplish this, we contacted selected federal and state officials, as

well as a small number of local school district officials, regarding the

coordination mechanisms employed by IDEA that are relevant to Medicaid

activities in schools. To review federal efforts at coordination, we

1

Because 1998 statistics on children are not yet available, our figure for the number of children

receiving medical care covered by Medicaid is based on fiscal year 1997 data.

2

The Medicare Catastrophic Coverage Act of 1988 enacted this requirement, which is currently codified

at 42 U.S.C. 1396b(c).

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contacted the Department of Health and Human Services’ (HHS) Health

Care Financing Administration (HCFA), which has oversight responsibility

for the Medicaid program, and Department of Education staff involved in

coordinating IDEA with Medicaid.3

 For the state perspective, we contacted

12 states: 9 that were among the states with the highest number of

school-aged children in special education and 3 that had predominantly

rural populations.4

 We obtained and analyzed the content of interagency

agreements and other documentation from selected state directors of

special education. We also contacted Education’s northeast and southeast

Regional Resource Centers, which are funded by the Office of Special

Education Programs and provide technical assistance to state education

agencies. We analyzed the coordination mechanisms reported by the

federal agencies; 12 states; and five urban school districts, which varied in

size from 3,000 to 156,000. We conducted our work between September

and October 1999 in accordance with generally accepted government

auditing standards.

Results in Brief Medicaid and IDEA interact differently at the federal, state, and local levels,

and the extent and nature of coordination continue to evolve. Federal

efforts focus on (1) helping states access funding sources such as

Medicaid and (2) working to develop clear and consistent guidance to help

educational entities appropriately claim Medicaid funding for IDEA-related

medical services. While charged with ensuring that Medicaid-eligible

individuals have access to and receive covered services, HCFA must also

safeguard Medicaid against improper claims. For the 12 states we

contacted, interagency agreements and agency liaisons are the primary

mechanisms of state-level interaction between Medicaid and IDEA.

Interagency agreements are generally used to assign roles and

responsibilities to participating agencies, while agency liaisons typically

serve as resources for school districts’ coordination efforts. Local

interactions between Medicaid and IDEA are affected by a variety of

factors, including the commitment of individual school districts to seek

Medicaid reimbursement, as well as specific characteristics and concerns

of local communities.

As states and school districts have worked to obtain Medicaid

reimbursement for covered school-based services, several concerns

3

Although IDEA also offers coverage for infants and toddlers (under part C of the statute), our review

focuses only on school-aged children receiving IDEA services under part B.

4

We contacted Florida, Illinois, Maine, Massachusetts, Michigan, New Jersey, New York, Ohio,

Pennsylvania, South Dakota, Texas, and Vermont. Collectively, these 12 states accounted for

43 percent of fiscal year 1996-97 Grants to States, IDEA part B, funds and 47 percent of federal

Medicaid funds in 1998.

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regarding coordination with IDEA have arisen. In the 12 states we

contacted, coordination concerns generally revolve around determining

which IDEA-related services Medicaid will cover, identifying children who

are eligible for both programs, and managing the documentation required

for submitting Medicaid claims. These efforts are complex for many

reasons, including the need to safeguard the privacy of children with

disabilities while ensuring appropriate documentation for claiming

Medicaid reimbursement. Efforts to coordinate Medicaid and IDEA have

also been affected by the lack of clear and consistent federal guidance. Six

of the 12 directors of special education and three of the five local school

district representatives with whom we spoke reported concerns about

Medicaid as a consistent source of funding. That is, inconsistent guidance

from HCFA appears to have heightened school district concerns that

Medicaid reimbursements will have to be returned to the federal

government later because of inappropriate documentation or changes in

documentation requirements. Recognizing the need for better

coordination, HCFA is developing additional guidance, which it plans to

issue in 2000. Additionally, HCFA has established a position to advise its

Administrator on disability policy and to facilitate communication among

the Administrator of HCFA; other federal policymakers, including the

Assistant Secretary for Special Education and Rehabilitation Services; and

the disability community. While these actions will not solve the difficulties

in coordinating Medicaid and IDEA services, state and local efforts could be

facilitated by federal guidance in communicating Medicaid’s coverage and

documentation requirements.

Background Medicaid is a joint federal-state program that annually finances health care

coverage for more than 40 million low-income individuals, one-half of

whom are children. States operate their programs within broad federal

requirements and can elect to cover a range of optional populations and

services. As a result, Medicaid essentially operates as 56 separate

programs: one in each of the 50 states, the District of Columbia, Puerto

Rico, and the U.S. territories. Medicaid is an entitlement program; hence,

states and the federal government are obligated to pay for all covered

services provided to an eligible individual.

Generally, the federal government shares in states’ Medicaid costs that fall

under two categories: medical assistance and administrative activities. For

medical assistance payments, each program’s federal and state funding

shares are determined through a statutory matching formula. This formula

results in federal shares that range from 50 to 83 percent, depending on

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B-283771 

each state’s per capita income in relationship to the national average. For

administrative claims, the federal share varies by the type of costs

incurred. Most administrative expenditures are matched at a fixed rate of

50 percent, making the federal government’s contribution equal to that of a

state. However, certain administrative expenditures are matched at a rate

higher than 50 percent.5

 Most Medicaid expenditures are for medical

assistance payments: over 95 percent of Medicaid’s $177 billion in total

expenditures in fiscal year 1998 was for health services.

Schools’ practices for filing claims for Medicaid reimbursement of covered

services for eligible children vary, depending on whether a school is

seeking reimbursement for health services, administrative activities, or

both. Schools that claim Medicaid for health services must meet the

Medicaid provider qualifications established by each state. In order to be

eligible for payment, all providers must meet the requirements established

by the state and have a provider agreement with the state Medicaid

agency. Schools may also receive reimbursement for administrative

activities that are found to be necessary for the proper and efficient

administration of a Medicaid state plan. Such activities may include

Medicaid outreach, application assistance, information dissemination,

referral for services, coordination and monitoring of health services, and

interagency coordination.

Schools can be an appropriate location from which to identify, enroll, and

provide Medicaid services to low-income children. In addition to services

offered in hospitals, clinics, or other health care locations, states are

authorized to use their Medicaid programs to help pay for certain health

care services delivered to Medicaid-eligible children in a school-based

setting. In some cases, states have identified schools as providers of

Medicaid services. The amount and type of services provided in

school-based settings vary by state, ranging from services provided by

contractors who visit the schools to services offered by fully equipped

school-based health clinics with permanent staff. Commonly provided

school-based services that qualify for federal funds include physical,

occupational, and speech therapy as well as diagnostic, preventive, and

rehabilitative services.

Finally, providing Early and Periodic Screening, Diagnostic and Treatment

(EPSDT) services to all Medicaid-enrolled children under 21 years of age

offers eligible children with or without disabilities a special entitlement to

5

For example, the cost of developing automated systems is federally matched at a 90-percent rate, and

the cost of activities performed by skilled professional medical personnel can, under certain

conditions, be matched at a 75-percent rate.

Page 4 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

health care. Under EPSDT, states are required to cover any service or item

that is medically necessary to correct or ameliorate a condition detected

through an EPSDT screening, regardless of whether the service or item is

otherwise covered under a state Medicaid program. States must also

conduct activities to inform Medicaid-eligible individuals about the EPSDT

benefit and encourage their participation in the Medicaid program. For

instance, states are required to provide Medicaid-eligible children and

families with assistance in locating EPSDT health care providers, assistance

in scheduling medical appointments, and transportation. Hence, under

EPSDT, Medicaid-eligible children have a broad entitlement to medically

necessary services.

Federal assistance to states under IDEA is contingent on the states’

obligation to make available to all children with disabilities a free,

appropriate public education. School districts are obligated to provide a

free, appropriate public education whether or not they receive federal

funds. In fiscal year 1999, the IDEA Grants to States program provided $4.3

billion in federal funds and served 6.1 million children.6

 Funding is based

on a child count formula that allocates aid to states on the basis of the

number of children with disabilities receiving special education and

related services. Although the formula authorizes a maximum federal

allotment for each child with a disability who is served that is 40 percent

of the national average per pupil expenditure for special education, the

fiscal year 1999 figure of $4.3 billion actually represents 11.7 percent of

this average expenditure.7

 The act specifies several procedures that school

districts must follow in providing educational services to children with

disabilities.

Under IDEA, local school districts, through the schools, must determine

whether a child has a disability and what the educational needs of the

child are. For each child with a disability, the school must

• develop, in conjunction with the child’s parents, teachers, and others, an

individualized education program (IEP), which is a written statement that

6

IDEA’s total federal appropriation for fiscal year 1999 was $5.3 billion, $4.1 billion of which was for

Grants to States under part B; $0.2 billion was an advance from prior year funding for part B.

Additional IDEA funding included $374 million for the Preschool Grants program; $370 million for the

Grants for Infants and Families program; as well as resources for IDEA national programs, which fund,

among other things, state program improvement grants and parent information centers.

7

The IDEA Amendments of 1997 (P.L. 105-17) provide for the formula to change to one that is

population-based once the appropriation for the program exceeds $4.9 billion.

Page 5 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
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details the education and supportive services a student with a disability

will receive;8

• provide services in accordance with the IEP;

• review each child’s IEP at least annually and revise it as appropriate; and

• reevaluate the child’s need for special education services as appropriate,

but at least once every 3 years.9

In addition to requiring special education services, IDEA also obligates a

school district to provide the “related services” that are required to help a

child with disabilities to benefit from special education, including

transportation, speech-language pathology and audiology services,

psychological services, physical and occupational therapy, social work

services, counseling, and medical services.10 Similarly, assistive

technology (such as special computer software or a device to assist in

holding a pencil) may be needed to help the student participate in school.

Furthermore, IDEA services are not limited to being delivered in a

school-based setting but can also be provided in homes, hospitals,

corrective facilities, or other locations if necessary in order for the child to

receive a free, appropriate public education.

Recognizing the breadth of services that can be provided—many of which

may be covered by Medicaid or other programs—IDEA requires that

educational entities perform several activities that are aimed at

coordinating IDEA services with the services of other agencies. In

particular, IDEA requires the following activities:

• The state must have in effect policies and procedures to ensure the

identification, location, and evaluation of all children with disabilities who

are in need of special education and related services (“child find”).11 Each

agency participating in child find must be identified and the nature and

extent of its participation documented.

8

The IDEA regulations specify that the IEP team must include (1) parent(s); (2) at least one of the

child’s regular education teachers (if the child is, or may be, participating in the regular education

environment); (3) one of the child’s special education teachers; (4) a representative of the public

agency involved; (5) an individual to interpret the implications of evaluation results; (6) the child

(when appropriate); and (7) other individuals with knowledge or special expertise regarding the child.

See “Assistance to States for the Education of Children With Disabilities and the Early Intervention

Program for Infants and Toddlers With Disabilities,” final regulations, 64 Fed. Reg. 12,405, 12,440

(1999) (to be codified at 34 C.F.R. 300.344).

9

See 42 U.S.C. 1414.

10In this context, related services that are defined as medical are limited to those for diagnostic or

evaluation purposes.

11See “Assistance to States,” 64 Fed. Reg. 12,405, 12,427 (1999) (to be codified at 34 C.F.R.

300.125(a)(i)).

Page 6 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
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• The state must also establish responsibility for providing services, which

involves developing an interagency agreement or other mechanism for

coordination.12 The agreement or mechanism must address (1) agencies’

financial responsibilities, (2) conditions and terms of reimbursement,

(3) procedures for resolving interagency disputes, and (4) policies and

procedures for coordinating services.

Finally, for any fiscal year, IDEA allows school districts to use up to

5 percent of the amount received under part B (Grants to States) in

combination with other amounts to develop and implement a coordinated

service system designed to improve results for children and families.13

Funding is expected to include funds other than for education, and

Medicaid is cited as one of several federal and state programs for which

service coordination and case management activities would be

appropriate.

Medicaid can be an important source of funding for schools, particularly

because the costs of providing special education can greatly exceed the

federal assistance provided under IDEA. Children who qualify for IDEA are

frequently eligible for Medicaid services, and although Medicaid is

traditionally the payer of last resort for health care services, it is required

to reimburse for IDEA-related medically necessary services for eligible

children before IDEA funds are used.14 Because many services required by a

child’s IEP are health-related or medical in nature, the Medicaid entitlement

is an attractive option for funding many IDEA services for low-income

children with disabilities. Furthermore, some administrative activities

under Medicaid, such as EPSDT outreach, can be relevant for such IDEA

activities as child find. Hence, educational entities have both

programmatic and financial incentives to ensure that coordination exists

between Medicaid and IDEA.

Additionally, concerns regarding the costs of implementing IDEA and the

need to identify alternative sources of funding have heightened as a result

of a recent Supreme Court case. In Cedar Rapids Community School

District v. Garret F.,

15 the Supreme Court held that under IDEA, the school

district must provide the student with the nursing services he requires

12See “Assistance to States,” 64 Fed. Reg. 12,405, 12,429 (1999) (to be codified at 34 C.F.R. 300.142(a)).

13See “Assistance to States,” 64 Fed. Reg. 12,405, 12,435 (1999) (to be codified at 34 C.F.R. 300.244(a)).

1434 C.F.R. 300.442 (a)(1).

15Cedar Rapids Community School District v. Garret F., 526 U.S. 66 (1999).

Page 7 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

during school hours.16 The superintendent of the Cedar Rapids Community

School District and the National School Board Association have expressed

concern about the financial obligations that may be associated with this

decision; others disagree, stating that the decision did not add financial

obligations or requirements beyond those already in effect. While not

adding new Medicaid requirements, the Court’s decision does have

relevance for Medicaid costs to the extent that states provide services

through IDEA that are eligible for Medicaid payment.

Medicaid and IDEA

Interactions Vary

Across Levels of

Government

Medicaid and IDEA interact differently at the various levels of government:

federal, state, and local. At the federal level, interactions center around

(1) assisting states with accessing funding sources such as Medicaid and

(2) providing guidance so that educational entities can appropriately claim

Medicaid for IDEA-related medical services. While charged with ensuring

that Medicaid-eligible individuals have access to and receive covered

services, HCFA must also safeguard the use of Medicaid funds to ensure

their appropriate use. For the 12 states we contacted, interagency

agreements and agency liaisons at the state and, occasionally, local levels

are the key mechanisms of interaction between Medicaid and IDEA. In

addition to the state-specific coverage criteria for state Medicaid

programs, local interactions between Medicaid and IDEA are affected by a

variety of factors, including the individual commitments of school districts

to seek Medicaid reimbursement and specific characteristics and concerns

that exist within a school district or local community.

Federal Interactions

Between Medicaid and

IDEA Reflect Differing

Agency Roles

Federal interactions between Medicaid and IDEA reflect the different roles

of HCFA and the Department of Education. While acknowledging the

importance of covering the school-based service needs of

Medicaid-eligible children, HCFA officials we spoke with expressed

concerns about the appropriateness of certain billing practices in schools.

In particular, school districts’ claims for administrative costs associated

with school-based health services have increased fivefold over the past 4

years, and federal oversight of school districts’ claims has been weak.

Thus, an environment conducive to opportunism has developed in which

16Recognizing that the school district must fund “related services” to integrate such students into the

public schools, the Court looked to the “bright line” test established in Irving Independent School

District v. Tatro, 468 U.S. 883 (1984). Under this test, the services of a physician (other than for

diagnostic and evaluation purposes) are subject to the medical services exclusion, but services that

can be provided in the school setting by a nurse or qualified layperson are not. Therefore, while the

Court in Garret F. acknowledged the student’s need for more extensive services, it noted that such

services are no more “medical” than the care sought in Tatro and must be provided by the school

district as “related services.”

Page 8 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

inappropriate claims have the potential for generating excessive Medicaid

payments.17 Recognizing that states and schools have a strong incentive to

maximize federal dollars, HCFA has focused its recent efforts to maintain

the integrity of the Medicaid program on working to develop and

disseminate guidance for schools and states. To support these efforts, HCFA

has instituted work groups aimed at clarifying appropriate billing practices

for IDEA-related services in schools.

In contrast to Medicaid, which has no statutory requirements for

coordinating services and activities with educational entities, IDEA’s

statutory mandate requires that educational agencies bear the

responsibility for coordinating IDEA-related services with other agencies,

such as Medicaid. Moreover, limited funds and the broad array of services

that IDEA can cover make finding additional funding sources important.

Education’s chief coordination efforts have been aimed at helping states

obtain funding through such sources as Medicaid. Education’s

coordination with HCFA has slowly increased over time. Education officials

told us they were not involved initially in HCFA’s work groups or in

developing guidance disseminated by HCFA in the spring of 1999 regarding

Medicaid billing practices in schools.18 More recently, Education officials

indicated that they have participated in one work group and stressed that

coordination with HCFA is extremely important to fostering coordination

between Medicaid and IDEA at the state level.

State Interactions Between

Medicaid and IDEA Take

Place Primarily Through

Interagency Agreements

and Agency Liaisons

State-level interactions between Medicaid and IDEA for the 12 states we

contacted are primarily governed through two mechanisms: interagency

agreements and agency liaisons. All states we contacted said that they had,

as required under IDEA, either an interagency agreement or other

mechanisms for coordinating with Medicaid. Interagency agreements in 10

states serve as mechanisms for outlining the responsibilities of the

education and Medicaid agencies. Some states have included additional

provisions in their agreements aimed at simplifying coordination,

providing quality review, or both. All 12 states identified agency liaisons

that are responsible for coordinating Medicaid claims for school-based

services. While the responsibilities of these liaisons—and their location

within state government—vary across states, liaisons are generally

17See Medicaid: Questionable Practices Boost Federal Payments for School-Based Services

(GAO/T-HEHS-99-148, June 17, 1999).

18On May 21, 1999, HCFA sent a letter to state Medicaid directors regarding reimbursement for

school-based health services under Medicaid. This letter explained practices associated with

reimbursement for transportation and reported efforts under way to review state practices for

claiming reimbursement for school-based health-related administrative activities.

Page 9 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

expected to serve as resources and to assist in resolving problems with

coordinating the two programs.

Interagency Agreements

Outline Responsibilities of

Medicaid and Education

Agencies

The language and terms of the interagency agreements we reviewed range

from general to more specific descriptions of each agency’s role. While

some aspects of the agreements vary, they focus primarily on assigning

roles to the Medicaid agency, the education department, and other key

stakeholders. For example, the general responsibilities of the Medicaid

agencies include performing fiscal duties, determining eligibility, and

reviewing and processing claims. Similarly, the education agencies are

responsible for screening children for Medicaid eligibility, facilitating the

Medicaid application process, and maintaining student records.

Some states have included additional provisions in their agreements to

enhance coordination efforts. For example, Pennsylvania’s agreement

includes both individual and mutual activities for the Medicaid and

education agencies for outreach, education, care coordination, service site

development, and monitoring and evaluation. In Texas, the agencies

jointly agreed to coordinate products and activities for the school districts

and to provide ongoing training and workshops within and between the

two agencies. Vermont prepared a section on school health services for its

Medicaid Practices and Procedures Manual, which details the guidelines

for program management, reimbursement, and fiscal monitoring, including

audit control and corrective action plans.

To ensure quality and maximize services, several states have included

requirements for maintaining a system of checks and balances. In Illinois,

the Medicaid agency reviews the data submitted from the local education

agencies, including the eligibility status of the recipient, the certification of

the provider, and the codes for covered services. Michigan’s process of

quality assurance involves both its Education and Medicaid agencies.

Although Michigan’s Education Department is responsible for performing

compliance audits, it sometimes conducts joint audits with the state’s

Medicaid agency. Education is responsible for submitting the results of the

on-site review of records and other essential documents to the state

Medicaid agency, while Medicaid verifies the methodology for payments.

Agency Liaisons Serve as

Resources for School Districts

The 12 states we contacted identified agency liaisons that are responsible

for coordinating Medicaid and school-based services. Over half of these

states have designated liaisons in both education and Medicaid agencies.

For example, while Florida has a liaison in the Department of Education,

the state also has 11 Medicaid program specialists who act as school

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B-283771 

liaisons by assisting in coordination efforts. These specialists work for the

Medicaid Area Program offices that administer Florida’s Medicaid

program.

Agency liaisons also serve as general resources and problem solvers for

school districts. Officials in Ohio’s Department of Education consider

themselves a resource for local education agencies because they answer

questions about Medicaid and the billing certification procedure. Illinois

state agency officials reported that the state’s most important coordination

mechanism has been the identification of an agency liaison, which was

instrumental in solving a problem the state faced in reconciling medical

and education terminology. In some instances, the responsibilities of the

liaisons vary to meet the needs of a state’s unique Medicaid program and

school systems. For example, New York has 11 coordinators in regional

information centers who help school districts and counties use their

software to create billing systems, collect data from schools, and set up

training sessions. In addition, the state has other education liaisons who

focus on Medicaid claims processing.

Varying Characteristics of

Localities Often Shape

Interactions

Just as state Medicaid programs are unique in their design and

implementation, the approximately 15,000 U.S. school districts also vary

greatly in size and scope. For example, in the 1995-96 school year, 23

districts had enrollments of over 100,000 students, while a much larger

number of districts reported serving fewer than 150 students. In our

previous work on school districts’ implementation of federal requirements,

we found that district officials often lacked accurate, timely, and detailed

information on federal programs and requirements, particularly for

complex programs such as IDEA and Medicaid.19 In addition, districts can

have different levels of experience and expertise in claiming federal funds

from programs such as Medicaid.

School districts also have different levels of commitment to claiming

Medicaid funds. For example, state agency officials in Michigan and

Florida informed us that they have been given a clear mandate to

encourage school districts’ use of Medicaid for school-based services and

to carry out whatever coordination tasks are necessary to ensure

participation. Michigan schools have been encouraged by the state

Education Department to become Medicaid providers. In Florida, the state

has passed legislation aimed at billing Medicaid for direct services in the

19See Elementary and Secondary Education: Flexibility Initiatives Do Not Address Districts’ Key

Concerns About Federal Requirements (GAO/HEHS-98-232, Sept. 30, 1998).

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schools; before this legislation, interactions between Medicaid and

education at the state level were limited to case-by-case instances. Even

with a clear mandate to use Medicaid for school-based services, however,

individual school districts vary in their approach to claiming Medicaid. For

example, one school district in Florida started with a pilot program to bill

Medicaid and slowly expanded its efforts over time, an approach that

district officials characterized as very conservative, compared with that of

another school district in the state.

Finally, school districts may have specific concerns that are shaped by

local circumstances. While these circumstances may not be restricted

solely to coordination issues between Medicaid and IDEA, they nonetheless

affect the districts’ ability to provide and fund appropriate services to

children with disabilities.

• Some providers and the services they offer are either unavailable or in

short supply in some communities.20 In particular, shortages of such

services as early intervention, transportation, and medical services are

more pronounced in rural than in other areas. Some rural districts may

also have difficulties locating providers of certain related services, such as

physical therapy and speech pathology, according to district and state

officials.

• Officials from one school district in Vermont reported that the difficulty in

reading that some parents of children with disabilities have makes it

difficult for them to learn about Medicaid. When such concerns are

suspected, school personnel make personal contact with the parents,

informing them about Medicaid and assisting them in completing the

enrollment form.

• Under IDEA, after the IEP is developed, the school district must provide the

agreed-upon services “within a reasonable period of time,” usually 60

days. District officials may not receive reimbursement—or know for sure

that reimbursement will be allowed—within this time period.

Implementation

Efforts Reflect

Attempts to Address

Coordination Issues

State and local efforts to seek Medicaid reimbursement for covered

school-based services reveal several coordination issues between

Medicaid and IDEA. In the 12 states we contacted, these issues generally

revolve around achieving clarity (and sometimes consensus) on what

services Medicaid will pay for, determining Medicaid eligibility for

children with IEPs, and establishing clear methods of documentation for

20See SSI Children: Multiple Factors Affect Families’ Costs for Disability-Related Services

(GAO/HEHS-99-99, June 28, 1999).

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billing Medicaid. States’ approaches to addressing these issues vary.

Coordinating these activities between educational entities and Medicaid

programs has been hampered by the lack of clear and consistent federal

guidance regarding the proper billing procedures for Medicaid. Six of the

12 directors of special education and three of the five local school district

representatives with whom we spoke expressed concerns about Medicaid

as a consistent source of funding. Some state officials also specifically

mentioned waiting for HCFA to issue guidance on claiming Medicaid for

school-based services and administrative activities, which is expected to

occur sometime in the year 2000.

State and Local Efforts

Reflect Similar Concerns;

Approaches to Resolving

Them Vary

States and local school districts cited similar coordination concerns about

coverage, or identifying Medicaid-reimbursable services; eligibility, or how

to identify children who are, or should be, enrolled in Medicaid; and

documentation, or compiling service data, submitting claims, and

receiving reimbursement from Medicaid.

Coverage State and local officials we contacted often reported difficulties

distinguishing between medical and educational activities and, thus,

clearly identifying which IDEA-related services Medicaid can be expected to

cover. For example, state education officials in New York, Massachusetts,

and Florida reported that it is frequently unclear whether speech and

language therapy are medical (rehabilitative) or educational

(developmental) in nature. Occupational therapy, such as fine motor

coordination or handwriting therapy, was also offered as an example of a

service that may or may not qualify for Medicaid coverage.

The uncertainty over what Medicaid will cover is exacerbated by

differences in terminology for educational and medical services. For

example, what education officials term an “intervention” can be called

“suicide prevention” or “crisis services” by the medical world. A second

example is the nature and characterization of counseling services, which

schools are likely to call “behavioral programming or management” and

Medicaid may term “therapy.”

Additionally, coordinating the differing requirements of Medicaid and IDEA

can be challenging. For example, required qualifications for Medicaid

providers may be higher than the standards of local school districts, thus

limiting the reimbursement that can be obtained under Medicaid. For

instance, in Maine, Medicaid requires licensure for speech/language

pathologists, a higher standard than the certification that schools require.

Page 13 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

One state education official told us that Maine is currently attempting to

pursue licensure for all speech/language pathologists so that schools can

receive Medicaid reimbursement for this service. A second issue involving

differing program requirements that is echoed by state and local officials is

the inherent conflict between Medicaid’s need for a diagnosis and a

school’s preference to discuss a child’s needs and develop an IEP without

specifically labeling the child. In one Florida school district, local officials

told us they have resolved this issue by having the school therapist contact

the child’s primary care physician, who then identifies the appropriate

diagnostic code(s).

These challenges at the state and local levels have not gone unrecognized

by federal agencies. Staff from both HCFA’s regional offices and

Education’s Regional Resource Centers acknowledge the difficulties in

distinguishing between medical and educational services. For example,

HCFA officials noted that the medical and educational components of

certain activities, such as physical and occupational therapy, case

management, and behavioral services, are difficult to separate. Moreover,

the long-term nature of some school-based health services (such as

occupational or physical therapy) runs counter to Medicaid’s more

traditional service delivery, which often involves short-term rehabilitative

services following surgery or an accident.

Eligibility Identifying children who are Medicaid-eligible—whether enrolled or

not—is a critical task for schools interested in claiming Medicaid funding

for IDEA-related services. In addition to the difficulties faced in identifying

children who are eligible but not enrolled in Medicaid,21 schools do not

always have ready access to information regarding children already

enrolled in Medicaid. A New York official reported that ensuring

confidentiality—that is, identifying IDEA children who are also

Medicaid-eligible without disclosing medical or educational

information—was initially one of the biggest challenges to coordinating

Medicaid and IDEA. Federal law prohibits issuing the names of individuals

with disabilities to any noneducational agency without parental consent,

thus making it difficult for schools to match names of children receiving

IEP services with names of Medicaid enrollees.22 In light of this

requirement, New York developed a system under which its Department of

Health provides a list of Medicaid-eligible children to the Department of

21See Medicaid: Demographics of Nonenrolled Children Suggest State Outreach Strategies

(GAO/HEHS-98-93, Mar. 1998).

22See 42 U.S.C. 1232g(b)(1).

Page 14 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

Education for the purpose of performing matches.23 Three other

states—Illinois, Michigan, and Texas—also reported using a tape match to

identify IDEA children who are Medicaid-eligible. A Pennsylvania official

indicated that, while the state has been interested in a tape match, it is still

working to establish a method that is acceptable to state and HCFA

officials.

Another challenge faced by some states in determining Medicaid eligibility

centers on the concept of third-party liability (TPL) 24 under the Medicaid

statute.25 Medicaid rules generally require that Medicaid pay for services

only after TPL sources have met their legal obligation to pay, while IDEA

legislation requires that parents not be charged for services provided

through an IEP.

26 Reconciling these statutory requirements for purposes of

determining Medicaid eligibility is a coordination challenge that states

have addressed in different ways.27

• In Pennsylvania, an official explained that students’ claims for

reimbursement for services must first be rejected by their private

insurance company before Medicaid can be billed, a requirement that

delays the reimbursement process.

• South Dakota state agency officials stated that the schools ask parents

whether the child has third-party insurance. If the child’s parents have an

outside source of insurance and refuse to authorize its use, Medicaid

cannot be billed, leaving the school obligated to cover the cost.

• In New York, the state Department of Health contacts insurance

companies on behalf of the school districts and identifies the services that

23In this process, New York’s Department of Health provides only the names, dates of birth,and sex of

the children eligible for Medicaid to comply with the privacy laws applicable to the Medicaid program.

24TPL refers to the legal obligation of certain health care payers (including private health insurance,

Medicare, employment-related health insurance, and noncustodial parents providing medical support)

to pay the medical claims of Medicaid beneficiaries before Medicaid pays these claims.

25See 42 U.S.C. 1396a(a)(25).

26IDEA part B funds may be used to pay deductible or copayment amounts that would be incurred

under private or public insurance. See “Assistance to States,” 64 Fed. Reg. 12,405, 12,430 (1999) (to be

codified at 34 C.F.R. 300.142(e)(2)(ii) and 34 C.F.R. 300.142(g)(2)). In the event that state Medicaid

programs have cost-sharing requirements, such as copayments, IDEA-related services must be

provided free of charge to children. Since traditional Medicaid does not allow cost sharing for services

provided to most children, such cases are likely to be limited to states with Medicaid demonstration

waivers under which innovative approaches to Medicaid, such as cost sharing, are tested.

27Medicaid regulations at 42 C.F.R. 433.139 specify that, in general, if probable TPL is established at the

time a claim is filed, the state Medicaid agency must reject the claim and return it to the provider for a

determination of the amount of liability. However, if probable liability is not established or benefits are

not available at the time the claim is filed, the Medicaid agency must pay the full amount allowed

under the payment schedule. The Medicaid agency must then seek reimbursement from the liable

party unless it determines the recovery would not be cost-effective.

Page 15 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

schools provide. The insurance companies are then asked to identify

services they will cover in a letter to the New York Department of Health.

These letters are used to document that TPL recovery does not apply to the

children covered under these policies. While the New York official who

described this process indicated that it works, he mentioned that it is very

cumbersome and requires considerable staff resources.

Documentation Medicaid documentation requirements are more burdensome than those

of IDEA, leading states to cite this as an area of concern in coordinating

Medicaid and IDEA services. State agency officials from Florida, New York,

Ohio, Pennsylvania, and Texas cited documentation as a challenge that, in

some instances, discourages school districts from filing claims for

Medicaid reimbursement. In light of documentation concerns, a few states

have adopted procedures to ease the process for school districts while still

meeting the documentation requirements of Medicaid.

• Two states, Vermont and Massachusetts, identified bundled rates as a

convenient means of reducing documentation. Bundling rates for purposes

of billing Medicaid is an approach that combines rates for several

Medicaid-covered school-based services into a single statewide rate.

Hence, rather than submitting claims for each service provided to a

child—for example, three claims for a child who receives physical therapy,

occupational therapy, and psychological services—a school may file one

claim to receive compensation for all three services. Vermont state and

local school district officials contend that although bundling reduces the

overall amount of paperwork, documentation requirements established by

Medicaid are still satisfied. One Massachusetts education agency official

reported that the less intensive paperwork involved in bundling rates has

made it easier for smaller schools to participate in claiming Medicaid

reimbursement.28

• One school district in Florida consolidated information on

education-related forms that the schools were already using and was able

to show the state Medicaid agency that the consolidated forms provided

adequate documentation for claiming Medicaid. As a result, the district has

achieved the required accountability along with some level of flexibility in

how the information needed for Medicaid claims is presented.

28In its May 21, 1999, letter to state Medicaid directors, HCFA stated that soon it would no longer

recognize bundled school-based health services as acceptable for purposes of claiming Medicaid

federal funds. Subsequently, a work group was established to review bundling practices, and HCFA

officials told us they plan to report on the results of this group’s work in 2000. In the meantime, states

with approved bundled rates have been allowed to continue this approach; however, the letter stated

that states are expected to develop and implement a nonbundled reimbursement methodology within a

“reasonable” amount of time.

Page 16 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

• One school district in Vermont is currently operating a pilot program for

processing its Medicaid claims and submitting them directly to the state

agency’s billing contractor. Officials told us that in the past, a school

would submit claims to the state Department of Education, often waiting

up to a year to receive reimbursement. Under the new pilot system, the

Department of Education has agreed to reimburse schools within 1 month.

In commenting on a draft of this report, a Vermont official told us that the

state is adjusting its payment processes with the goal of making payments

to all school districts within the month following the submission of claims.

Additional Federal Guidance

Could Assist Coordination

Efforts

Confusion over proper billing procedures, coupled with a lack of clear and

consistent guidance from the federal government, has been a challenge to

coordination in some states. Currently, HCFA’s main guidance for claiming

Medicaid reimbursement for school-based services is a technical

assistance guide. The guide provides information regarding the specific

Medicaid requirements associated with implementing a school health

services program and seeking Medicaid funding for school health services

and administrative activities.29 However, officials of four states and two

HCFA regional offices with whom we spoke believe that additional

guidance is needed, including the need to identify (1) which services

should be covered by Medicaid and which are educational in nature and

(2) appropriate administrative cost claiming practices. Discussions with

two Department of Education Regional Resource Center representatives

reiterated states’ interest in additional guidance.30 Additionally, some

Education officials we contacted believed that additional guidance from

HCFA and Education would enhance coordination of Medicaid and IDEA.

31

HCFA has recognized the need for additional guidance, which it expects to

issue sometime in 2000. Additionally, HCFA has established a position to

advise the Administrator on disability policy and to perform other

functions, such as facilitating communication among the Administrator of

HCFA; other federal policymakers, including the Assistant Secretary for

Special Education and Rehabilitation Services; and the disability

community. The potential for changes in guidance on billing practices and

29See HCFA, Center for Medicaid and State Operations, Medicaid and School Health: A Technical

Assistance Guide (Washington, D.C.: HHS, Aug. 1997).

30The Regional Resource Centers are funded by the Office of Special Education Programs and provide

technical assistance services to state education agencies in the 50 states and in seven U.S.

jurisdictions. The centers are funded specifically to help states improve programs and services for

children and youth with disabilities, their families, and the professionals who serve them.

31Absent further federal guidance, one Regional Resource Center has developed a Medicaid work

group aimed at providing the 10 states in its region with a network of shared information regarding

Medicaid billing in schools. While only one meeting has been held to date, center representatives

believe that this group will be a valuable forum for sharing information about claiming Medicaid

funding for school-based and administrative services.

Page 17 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

procedures will heighten the continuing need for additional efforts to

coordinate the Medicaid and IDEA programs. For example, a state

education official in New York told us that, after the May 21, 1999, policy

changes from HCFA, it took a great deal of work to inform school districts,

claims processors, and providers of the changes instituted and to train

these entities to implement the changes. According to some of the state

and local officials we contacted, such changes in reimbursement policies

and procedures may also add to districts’ concerns about relying on

Medicaid funding. In fact, Florida education officials linked their concern

to some Florida districts’ decisions not to participate in Medicaid

school-based billing. Additionally, one New York education official told us

that schools that have been diligent in their Medicaid reimbursement

efforts are particularly afraid of losing Medicaid revenue that has been

built into their budgets. A Pennsylvania official revealed related worries,

such as the fear of hiring new staff and initiating programs that are funded

by a potentially uncertain financial source. Such perceptions, even if of

limited validity, may further complicate and limit coordination between

the two programs.

Conclusions Coordination efforts between Medicaid and IDEA, particularly at the state

and local levels, are complex and evolving. The varied nature of the states’

Medicaid programs, coupled with the wide range of diversity among state

and local education programs, requires that coordination efforts address

broad federal requirements under what are often unique local and state

circumstances. Interactions between IDEA and Medicaid also raise the

challenge of balancing the need to provide children with the educational

services necessary for their development and physical well-being against

concerns that claims for Medicaid are inappropriate and excessive.

Moreover, coordination efforts are currently being conducted in an

environment in which federal guidance on Medicaid coverage for

school-based services is unclear and inconsistent.

Both Medicaid and IDEA have an obligation to children with disabilities to

ensure that they receive services that will best address their

developmental needs, and coordination is essential to meeting this

obligation. State and local efforts, however, require federal guidance to

communicate Medicaid’s coverage and documentation requirements.

Without clear and consistent federal guidance, state and local entities run

a greater risk of misunderstanding or misusing Medicaid as a funding

source for school-based services. Recognizing this need, HCFA is

developing additional guidance, which it expects to issue in the year 2000.

Page 18 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

Agency and Other

Comments

We provided officials from Education, HCFA, and the states and local

school districts in our sample an opportunity to review a draft of this

report. HCFA agreed that coordination efforts at the federal level could be

improved. Education did not provide formal comments, but program

officials offered several clarifications regarding coordination efforts with

HCFA and discussions relevant to IDEA. HCFA expressed concern that our

overall findings seemed to indicate that its guidance to states has been

insufficient. HCFA also commented that it was unable to provide strict

guidance given the variations in states’ programs, and that coordination

issues need to be resolved at the state and local levels, rather than at the

federal/state level. While this report acknowledges the variety that exists

in states’ Medicaid and education programs, we agree that strict guidance

is not an appropriate course. Nevertheless, state and HCFA officials both

identified concerns that would benefit from additional federal direction.

We further recognize that HCFA plans to provide additional guidance to

states and school districts in an effort to provide additional direction in

navigating this complex area. HCFA’s written comments are provided in the

appendix.

Education, HCFA, and responding state and local officials provided

technical comments, which we incorporated as appropriate.

As agreed with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days from the

date of this letter. At that time, we will send copies to the Honorable

Donna Shalala, Secretary of Health and Human Services; the Honorable

Nancy-Ann Min DeParle, HCFA Administrator; the Honorable Richard W.

Riley, Secretary of Education; the Honorable Judith E. Heumann, Assistant

Secretary, Office of Special Education and Rehabilitative Services,

Department of Education; special education officials in the 12 states we

contacted; and interested congressional committees. Copies will also be

made available to others upon request.

Page 19 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
B-283771 

If you or your staff have any questions about this report please call me at

(202) 512-7118 or Carolyn Yocom at (202) 512-4931. Other staff who made

contributions to this report were Laura Sutton Elsberg, JoAnn Martinez,

Catina Bradley, and Behn Miller.

Sincerely yours,

Kathryn G. Allen

Associate Director, Health Financing

 and Public Health Issues

Page 20 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
Page 21 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
Contents

Letter 1

Appendix 

Comments From the

Health Care Financing

Administration

24

Abbreviations

EPSDT Early and Periodic Screening, Diagnostic and Treatment

HCFA Health Care Financing Administration

HHS Department of Health and Human Services

IDEA Individuals With Disabilities Education Act

IEP individual education program

TPL third-party liability

Page 22 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
Page 23 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
Appendix 

Comments From the Health Care Financing

Administration

Page 24 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
Appendix 

Comments From the Health Care Financing

Administration

(101873) Page 25 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
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